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C and BAC


racemize
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Perhaps I'm mistaken, but it seems like the board (myself included) latched on to BAC rather than C, and I'm trying to figure out why exactly.  If you look at the returns of the two companies over the investment time period, they are fairly similar, though BAC is sometimes higher, depending on when you got in.  There were also value investors in C (though not Berkowitz) at the time. 

 

Some reasons I have thought of:

1) C had a lot more foreign exposure that many were concerned about (e.g., break-up of Euro, potential issues in China, etc.)

2) Low cost of deposits for BAC

3) Perhaps low opinion of Pandit, at the time

4) The BAC warrants were much more attractive

 

In any event, I haven't spent a ton of time on C and, given the post count, neither have a lot of us.  Perhaps we should be, though.  E.g., Pabrai is equally weighted for both of them.

 

Anyway, any thoughts?

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I can do simple math (I have BS in Math degree) so I can tell you what a 13% return on tangible equity translates into for a 10x or 12x earnings multiple.  So based on that, I was in banks.  I was in both banks for a while.  I then concentrated only in BAC after Buffett invested in BAC and repeatedly commented that he can't imagine what Citigroup's earnings would be like down the road.  I figured they both looked roughly just as good with my own knowledge, but Buffett only really cared to own one of them.  So I followed Buffett's trail into the woods and invested only in BAC.

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One down and out bank was enough at the time.  BAC was it.  I spent my time focussing on it, and how the Leaps behave, probabilities of recovery.  As I have said before, my best returns have always been when I have gotten to know something over time reasonably well.  I didn't look at C initially so I have let it go ever since.  BBAc management has learned and grown in the 3 plus years I have held the stock. 

 

I have also held smaller positions of JPM and WFC since around early 2011, and tripled down on JPM in the aftermath of the Whale incident.  Thats enough for one private investor to keep track of. 

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I think BAC was more predictable of the two, especially after BAC announced their cost cutting initiative. They made it clear that they were going back to the basics. It was much more uncertain what Citi was going to do at that point. So in my portfolio, I had a 3:1 allocation between BAC and C. BAC also had more favorable warrant strike prices because the C ones were way further out of the money (couldn't see the margin of safety, although I did see the value). Berkowitz also liked C and owned a lot of C when he had $20 billion AUM (I think he couldn't buy more BAC because it is a broker dealer, or he needed to split it for liquidity reasons), but sold C off when the redemptions came.

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